I just had a question about how interest rate works. How do u gain or lose interest rate? And how is paying or taking this interest rate for or away from you? thanks
Let’s use EUR/USD as the example and assume we’re taking a long position.
When we buy EUR/USD that means we are borrowing USD, converting it in to EUR, and depositing the EUR. Thus, we are paying interest on a USD loan and earning interest on the EUR deposit. If the EUR overnight interest rate is higher than the USD overnight rate, we make money. If the USD rate is higher, we lose money.
In any trade you will be borrowing the currency you are shorting and depositing the currency you are long.